| On any given major stock exchange, from Wall Street | | | | with a given stock's volume pattern to gain true |
| to Bombay or from London to Hong Kong, billions of | | | | mastery. Baker Hughes, Inc. (BHI) typically will move in |
| shares are traded each day that represent trillions of | | | | force with just a 20-25% higher volume spike while |
| dollars exchanged back and forth. This buying and | | | | some of the lesser known small-cap stocks might |
| selling action represents volume, which is the result of | | | | require 150% or more. |
| the exchange of stock or commodity between both | | | | The study of price and volume relationships also |
| buyer and seller. Volume, then, is the prime mover in | | | | reveals a condition known as "climatic volume" which |
| the price for a given stock or commodity in a given | | | | to a skilled trader can reveal a complete reversal in a |
| amount of time. | | | | given trend. After a stock has had strong advance or |
| If there is more buying than selling for a ABC stock | | | | decline is where climatic volume can result (the |
| then what results is the rise in price for that stock. | | | | operative phrase is "after" a strong advance or |
| Likewise, if there is more selling then buying in ABC | | | | decline). |
| stock then share price is likely to fall in value. This | | | | After an explosive move, usually the result of a |
| makes the study of volume a valuable indicator to | | | | volume spike, climatic volume results when traders |
| determine if a stock is either in demand or likely to | | | | come into the last stages of that advance of decline |
| increase in share value in the future. | | | | and price moves sharply at the last move of its trend. |
| Many aspiring stock traders practice a style of stock | | | | At this point, all the buying and/or selling has resulted |
| trading popularly referred to as "momentum investing" | | | | and the move has exhausted itself and volume is then |
| where one attempts to identify stocks that are | | | | considered climatic when it exceeds two times the |
| fluctuating in a given price range for a length of time | | | | average daily volume over the last ten days. At these |
| and are likely to have explosive moves to the upside | | | | extreme volume levels price often goes almost |
| or downside out of those ranges. The confirmation for | | | | parabolic or straight up in price without a noticeable pull |
| those explosive moves are taking long positions at the | | | | back. |
| upper end of that price range or short positions at the | | | | Master traders can spot these "Bump and Run The |
| lower end of that price range on greater than average | | | | Top" or "Rising or Declining Wedge" patterns and use |
| volume. | | | | these climatic volume spikes to exit their positions and |
| Let me offer an example of the importance in volume | | | | then use them to spot the trend reversal and get in at |
| by stating that volume is literally the fuel for stock | | | | the beginning of a new trend transition. |
| values. Like the space shuttle when it is launched into | | | | The study of the relationship between price and |
| space the majority of fuel is spent to just get it into | | | | volume can give both technical and systemic traders |
| orbit. This explosive force of energy to propel the | | | | the confirmation that they need to get in on explosive |
| space shuttle into space or new heights requires an | | | | moves and also serve as indicators as to when its |
| above average reserve of the fuel but then the space | | | | time to get out and, possibly, even spot a new trend in |
| shuttle can then use only a small portion of the | | | | transition to exploit profitably. Volume should be |
| remaining fuel reserve to carry out the rest of its | | | | considered as the most important precursor to price |
| mission. Volume is to stocks what rocket fuel is to the | | | | movement at the disposal of investors or traders and |
| space shuttle. | | | | can possibly lead to some huge gains to those who |
| A good average is a 150% of its normal volume but I | | | | take the time to understand the relationship between |
| would also stress that its important to become familiar | | | | price and volume. |